My understanding is that you treat it as the sale of two things. One is the undepreciated land, the other is the depreciated building. Prorate the costs of sale to the two items and go from there. This is because the land sale gets entered directly on Part I of the 4797 but the building goes on Part III first and moves to Part I or II depending on the result.
Ann Von Hagel, EA
Arlington, VA
From: taxchat@yahoogroups.com [mailto:taxchat@yahoogroups.com] On Behalf Of Laura Morton
Sent: Wednesday, September 10, 2008 1:24 AM
To: taxchat@yahoogroups.com
Subject: [taxchat] Basis question...
Ok…might be stupid question, but right now it is about a $10K question!!
On the basis of residential rental property….
Purchased property - Established true cost of property backed out cost of land and then depreciated the balance accordingly.
Selling property- Established selling price, cost to sell, deducted depreciation taken but….don’t I add back in the value of the land at this point? That is part of the original ‘purchase’ cost, just not depreciated.
I can handle the outcome with the land added back, but not without….there is literally a 10K swing in the tax amount.
Thanks – and I remember that the stupid question is the one that goes unasked….
Laura M. Morton, EA
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